MACAU SOFTENS POST GOLDEN WEEK

Upping forecast to 3-9% growth for September

As expected, average daily table revenues dropped off considerably following Golden Week, but is still up 20% over last year. We are now projecting YoY GGR growth of 3-9% for the full month of October. Remember that October of 2011 was a monthly record and up 42% over October 2010. Hold was also above normal last year. This is a much more difficult comparison than either November or December so we are expecting sequentially accelerating growth.

For market share, MPEL, Galaxy, and LVS seem to be enjoying the strongest month relative to trend. WYNN recovered somewhat but still remains well below trend. MGM has also lost share.

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10/15/12 09:37 AM EDT

European Banking Monitor: European Financial Swaps Mostly Tighter

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor". If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:

*Sovereign Swaps around the world were largely flat week-over-week with the largest single move coming from Ireland, where swaps tightened 28 bps to 253 bps. Spain and Portugal saw their swaps widen by 4 and 8 bps, respectively, while France and Italy saw their swaps tighten by 4 and 8 bps, respectively.

On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.

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If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.

Matthew Hedrick

Senior Analyst

(o)

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European Financials CDS Monitor – It was a fairly uneventful week for default swap action on European banks. The trend was broadly lower (swaps tightened) with a median improvement of 10 bps WoW, and an average decline of 6 bps. Overall, 28 out of 37 European reference entities we track tightened.

Euribor-OIS spread – The Euribor-OIS spread tightened by 1 bp to 12 bps, and continues to make new, multi-year lows. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

ECB Liquidity Recourse to the Deposit Facility – This series has been generally trending lower since July of this year. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.

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10/15/12 09:09 AM EDT

Taking Risks

TAKING RISKS

CLIENT TALKING POINTS

TAKING RISKS

When Felix Baumgartner dove from the edge of space yesterday for the Red Bull Stratos event, he certainly knew the risks involved and how to manage them accordingly. Risk management is a process that can be applied outside of financial markets and Baumgartner’s endeavor is indicative of that.

Looking at our signals for the various asset classes we cover this morning, we’ll continue to trade things like gold in the $1 range and the S&P 500 between 1. Staying within your parameters is the key to success - be it the market or jumping out of a balloon 24 miles high in the sky.

GETTING IT RIGHT

As we’ve said before: get the US dollar right and you’ll get a lot of other things right. That is the case early this morning as the US dollar made a move to the upside, taking commodity prices down with it. Oil, gold and the euro have all fallen materially and should the dollar have some more chutzpah in it to travel higher, expect more downside for commodities. After all, some commodities took a beating last week with copper down -2.2% and gold down -1.4%. Remember the Bernanke Correlation. The Fed is busy devaluing the dollar and driving up commodity prices. When the Fed is out of bullets and pondering what to do next and if Mitt Romney is elected President, there's a chance we could actually get back to strengthening our currency on a long-term basis.

_______________________________________________________

ASSET ALLOCATION

Cash: Flat

U.S. Equities: DOWN

Int'l Equities: Flat

Commodities: Flat

Fixed Income: UP

Int'l Currencies: Flat

_______________________________________________________

TOP LONG IDEAS

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

TRADE: LONG

TREND: LONG

TAIL: LONG

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

TRADE: LONG

TREND: LONG

TAIL: LONG

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

THE HEDGEYE DAILY OUTLOOK

As we look at today’s set up for the S&P 500, the range is 26 points or -0.67% downside to 1419 and 1.15% upside to 1445.

SECTOR AND GLOBAL PERFORMANCE

EQUITY SENTIMENT:

ADVANCE/DECLINE LINE: on10/12 NYSE -830

Decrease versus the prior day’s trading of 909

VOLUME: on 10/12 NYSE 624.50

Decrease versus prior day’s trading of -3.43%

VIX: as of 10/12 was at 16.14

Increase versus most recent day’s trading of 3.53%

Year-to-date decrease of -31.03%

SPX PUT/CALL RATIO: as of 10/12 closed at 2.13

Up from the day prior at 1.72

CREDIT/ECONOMIC MARKET LOOK:

BONDS – US Treasuries don’t care much for the up EuroStoxx, up SP Futures thing; 10yr yield hasn’t budged a beep this morning after falling back to 1.66% from 1.74% last week. Lower-highs US stocks as bonds make higher-lows. #GrowthSlowing, globally.

U.S. Chamber of Commerce unveils International Index of Energy Security Risk on global markets, 9am

WHAT TO WATCH:

Softbank agreed to pay $20.1b to buy a 70% stake in Sprint

U.S. retail sales probably rose in Sept. for a 3rd month

Greece’s 10-yr yield falls to lowest since debt restructuring

China’s exports, money supply grew more than est. in Sept.

Japan said to plan $2.5b Renesas bid as early as Nov.

Bank of Israel Governor Stanley Fischer said the world is “awfully close” to a recession

“Taken 2” top movie for 2nd weekend with sales of $22.5m

Douglas Holding receives $1.9b bid from Advent-controlled companies

Apple appeals Tokyo court ruling on Samsung patent case

Lifetech Scientific Investor sells 19% stake for HK361m

Credit card monthly charge-offs, delinquencies to be released

Verizon begins defense of $9.5b trial on Idearc spinoff

Nike, RadioShack, Anheuser-Busch Stand by Armstrong: FT

EARNINGS:

Citigroup (C) 8am, $0.97 - Preview

Gannett (GCI) 8:30am, $0.53

Charles Schwab (SCHW) 8:45am, $0.17

Packaging Corp. of America (PKG) 5pm, $0.56

Valmont Industries (VMI) 5:30pm, $2.05

Brown & Brown (BRO) After-mkt, $0.35

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

Oil Trades Near Four-Day Low Amid Global Economic Growth Concern

Bullish Wagers Drop to Eight-Week Low Before Rally: Commodities

Copper Erases Decline as Buyers in Europe Take Advantage of Drop

European Naphtha Cargoes Shipped to Asia Set to Rise in October

Gold Declines With Commodities; Silver Falls to a One-Month Low

Soybeans Drop Below $15 for First Time Since July as Crops Slide

Cocoa Falls Before U.S., Europe Processing Data; Sugar Retreats

LME’s O’Hegarty Says a Lot of Regulation Happening in ‘Hurry’

U.S. Plunge in Gas Drilling Means $1 Billion Lost Profit: Energy

China Boosts Soybean Imports as Reduced Supplies Spur Purchases

Qatar Is Favorable to Glencore-Xstrata Deal, Prime Minister Says

Potash Inventory Up 50% in Brazil, 33% in India Through August

Silver to Extend Drop Before Rally Resumes: Technical Analysis

Tropical Storm Rafael Nears Hurricane Strength in Atlantic

LME’s Martin Abbott Expects Record Trading Volume This Year

CURRENCIES

EUROPEAN MARKETS

GERMANY – snapped TRADE line support of 7316 last wk and is struggling to get back above that this morn despite the no-volume rally in European Equities to start the wk; EuroStoxx600 was -1.7% last wk and we’ve seen these Monday rallies in Europe fade in recent weeks, so watching levels here will be important.

ASIAN MARKETS

KOSPI – continued to struggle overnight, down another –0.4% and at 1925 is now decisively below our 1976 TRADE line of resistance; like Tech (XLK), which is down -3.5% in the last mth, this is a new growth scare for what was working.

MIDDLE EAST

The Hedgeye Macro Team

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10/15/12 08:01 AM EDT

Insanely Great

This note was originally published
at 8am on October 01, 2012 for Hedgeye subscribers.

“This country is insanely great.”

-Steve Jobs

That’s what Steve Jobs told President Obama at a fundraising dinner in California in February of 2011. He went on to add that what he was worried about “is that we don’t talk enough about solutions.”

I disagree with Jobs on the 2nd part of that statement. America’s academic and political elite talk plenty about solutions. What worries me is that they’re always talking about government solutions.

Jobs’ aforementioned quote comes at the end of the Introduction in The 4% Solution where James Glassman writes “that government needs to get out of the way of enterprise for growth to take off.” I like that. What I don’t like is that the rest of the book goes on and on about more ways the government can help.

If you think the stock market is the economy, we’ll that didn’t look very healthy last week either. It was the biggest down week for stocks since June and, since Bernanke’s most recent Policy To Inflate top, US stocks are down for 8 of the last 10 days.

Why? Economic Gravity can’t be “smoothed” away by government solutions:

US GDP Growth for Q2 of 2012 was reported last week 69.27% lower than where it was 6 months ago

Within the PMI report, New Orders and Employment dropped from 54.8 and 57.1, to 47.4 and 52, respectively

Whether you want to talk to me about Q2 or the last month of Q3, from a US growth perspective, that’s just nasty. On the inflation front, the news wasn’t much better. Prices Paid (within the same PMI report for September) ripped higher from 57 to 63.2!

Repeat after me: Policies To Inflate Slow Growth. Period.

Plenty a Keynesian academic advisor to Obama will continue to hide from that 1970s like conclusion, until they can’t. Maybe that’s why Romney is finally distancing himself from Harvard Keynesian Economist (and advisor) Greg Mankiw this morning.

The #2 Most Read story on the Economy tab of Bloomberg.com this morning: “Romney Bashing Bernanke Rejects Mankiw’s Monetary Views.” That doesn’t mean Romney is going to be President. It just means he just found a way to land a punch.

Back to the US Economic Data. Here’s how US GDP Growth fell -69.27% in the last 6 months:

Adjusting for inflation is annoying to government guys who take car service to work because they don’t have to pay for gas or that pastry spread awaiting them at their next Washington meeting. That must be why the aforementioned Real GDP print only implies a +1.52% “Deflator.”

What’s shocking (and sad) is that the US Government’s “Deflator” (the number they subtract from the nominal, inflated, growth in order to print the “real” number) has been marked down by more than 27% since Q4 of 2011 AS PRICES INFLATED!

If Housing was really “back”, shouldn’t we be seeing that in the rental component of US Government reported “inflation”? How about Prices Paid rising +11% in last month’s PMI report alone? Or how about oil prices +30% off the YTD lows, +160% since 2009?

Nope. On the margin, Bernanke sees none of it impacting consumption or costs. No inflation. Touchdown Seahawks!

In a country that used to be considered Insanely Great, I don’t have to wonder how America’s next innovator likes them Apples. We can do a lot better than lying to people. Progress starts with telling people the truth. It’s only from there that we can move forward.

My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1770-1783, $110.61-112.98, $79.41-80.31, $1.27-1.29, 1.59-1.70%, and 1432-1451, respectively.

MONDAY MORNING RISK MONITOR: US & EU BANKS DIVERGE

Takeaway:A divergence between US and EU financials in the latest week, with US bank swaps moving wider by 6 bps while EU bank swaps fell 10 bps.

Key Takeaways

* American financial swaps were generally wider last week, while European financial swaps were mostly tighter.

* Sovereign Swaps around the world were largely flat week-over-week with the largest single move coming from Ireland, where swaps tightened 28 bps to 253 bps. Spain and Portugal saw their swaps widen by 4 and 8 bps, respectively, while France and Italy saw their swaps tighten by 4 and 8 bps, respectively.

* The 2-10 spread continued to fall last week, declining ~9 bps to end the week at 140 bps. As WFC reminded us on Friday with its 25 bps QoQ NIM decline, it's hard to fight the gravity of falling long-term rates.

1. American Financial CDS – Money center banks and large brokers saw their swaps widen between 4 and 8 bps, respectively, with the exception of MS, where swaps tightened 1 bp. The median US Financial swap widened by 6 bps, and, overall, swaps widened for 16 out of 27 domestic financial institutions.

Widened the most WoW: MTG, WFC, BAC

Tightened the most WoW: HIG, ALL, PRU

Widened the most MoM: WFC, MBI, AXP

Tightened the most WoW: HIG, AIG, UNM

2. European Financial CDS – It was a fairly uneventful week for default swap action on European banks. The trend was broadly lower (swaps tightened) with a median improvement of 10 bps WoW, and an average decline of 6 bps. Overall, 28 out of 37 European reference entities we track tightened.

4. Sovereign CDS – Sovereign Swaps around the world were largely flat week-over-week with the largest single move coming from Ireland, where swaps tightened 28 bps to 253 bps. Spain and Portugal saw their swaps widen by 4 and 8 bps, respectively, while France and Italy saw their swaps tighten by 4 and 8 bps, respectively.

9. Euribor-OIS spread –The Euribor-OIS spread tightened by 1 bp to 12 bps, and continues to make new, multi-year lows. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.

10. ECB Liquidity Recourse to the Deposit Facility – This series has been generally trending lower since July of this year. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.

11. Markit MCDX Index Monitor –Last week spreads widened 3 bps, ending the week at 138 bps versus 135 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

12. Chinese Steel – Chinese steel prices ended the week at 3,806 ton/Yuan. As a reminder, there were no Chinese steel quotes in the prior week because of the Mid-Autumn Festival holiday. The general trend over the last few months has been down. However, over the last month, Chinese Steel has rallied 9.3%.

13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure. Last week the 2-10 spread tightened to 140 bps, 9 bps tighter than a week ago.

NYSE Margin debt rose to $287 billion in August from $278 billion in July. It's interesting to note that this most recent print brings the two series back into convergence. We like to to look at margin debt levels as a broad contrarian sentiment indicator. For reference, our approach is to look at margin debt levels in standard deviation terms over the period 1. Our analysis finds that when margin debt gets to +1.5 standard deviations or greater, as it did in April of 2011, it has historically been a signal of significant risk in the equity market. The preceding two instances were followed by the equity market losing roughly half its value over the following 24-36 months. Overall this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag. The chart shows data through August.

Joshua Steiner, CFA

Robert Belsky

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